Perhaps you may have heard about credit rating or credit score from lenders. But what is bad credit? How do you definite it? According to FICO, a person has a bad credit if the score falls in between 300 to 629. As banks and lending companies factor in risks, many would reject business loan applications. All the more if the borrower has a poor credit score as it is considered to be a high-risk loan. Even if you have a bad credit rating, you still have alternative lenders who are willing to provide you with the loan you need. The only thing is that you may not have a lot of options.
Most lenders require borrowers to have a minimum personal credit score while there are also a few lending companies that don’t require any minimum credit score. These lenders focus on your business compared to your personal credit rating. However, it is important to keep in mind that lending companies consider a wide range of factors including annual revenue, cash flow, and number of years your business is in operation to name a few.
For borrowers, there are options that you may have to consider prior to selecting a financing option. Firstly, if you have a really low credit score, you should expect that you will have to pay higher interest rates and fees. This is a no-brainer, especially since lenders will still factor risks in the event that you fail to pay back the loan. If there are customer invoices that are still not paid.
Lenders consider different factors when underwriting business loans. Even if you have a poor credit score, there are still factors that can affect your funding options:
When you are searching for a business loan and your personal credit rating is not that good, there are certain steps that you have to undertake in order to get the funding that you need for your business.
Getting a loan from a bank is the most common option among business owners. But if you happen to have a poor credit score, this option is just not available to you. Of course, you can always try and submit your application but banks and other traditional lending companies are quite strict when it comes to a loan application. They look at your personal credit score as one of the main criteria as to whether they will grant or reject your loan application.
It gets more difficult for small business owners. In fact, even businesses that have good track records may still face challenges in securing a business loan, all the more for a small business owner. Many of these banks require you to have at least 700 credit score, on top of that additional criteria that you have to satisfy in order to qualify for the loan application.
This explains why bank loans may not be the option for you. That is why most people and business owners turn to online lenders. Most bad credit business loans are actually offered by online lending companies. It is not that they don’t look at your credit score. They just have a different set of criteria which you may be qualified for.
Same as personal loans, if you have a poor credit score, you can actually offset your bad credit score with collateral. Having collateral is a good way for lenders to categorize your loan application as less risky. This type of loan is also known as a secured business loan which is a great option for those who don’t have that stellar credit store.
When getting a secured business loan, here are important things that you need to keep in mind:
If you intend to apply for a secured business loan, there are actually different types of collateral that you can use. These include the following:
The requirements for secured business loans may vary depending on the lender. They accept collateral and have your loan approved even if you have a poor credit score. But you also need to keep in mind that lending companies differ when it comes to how they function and operate. They vary when it comes to the type of collateral they accept. Take the time to check and gather more information.
Having this kind of business loan has its share of pros and cons.
Short term loans have a time period ranging from 3 to 18 months. This is a familiar loan structure for many where you have to pay ACH payment every day. The borrower has to make daily payments on business days excluding bank holiday. The thing with short-term business loans is that they may be relatively easier to get. But the downside is that it is much more expensive. The APR is higher and when you have to pay on a daily basis, it can negatively affect your cash flow.
So why are there still businesses that prefer to have short-term business loans? This might be an expensive loan. Then again, there are times where you just need extra funds. And since it is very easy to apply for one, it makes it an ideal business loan for bad credit.
One of the main reasons why many business owners opt for short-term business loans is that it does not take that effort to apply for one. They have short application and you get to have your money fast. If there is a need for you to have fast cash and you really need money for a business decision, this is a good choice. If you have a really bad credit score, you can still get a short-term business loan.
When you have good credit, you get to have more loan options. You also don’t have to settle having to pay for expensive rates and fees simply because you no longer have other options. This puts your business in a much better position.
Here are some things that you have to do in order to have good credit and have affordable financing for your business.